As Whistleblowing Becomes The Most Profitable Financial 'Industry', Many More 'Greg Smiths' Are Coming

Minutes ago on CNBC, Jim Cramer announced that Greg Smith will never get a job on Wall Street again as "one never goes to the press. Ever." Naturally, the assumption is that the secrets of Wall Street's dirty clothing are supposed to stay inside the family, or else one may wake up with a horsehead in their bed. There is one small problem with that. Now that compensations on Wall Street have plunged, and terminations are set for the biggest spike since the Lehman collapse, the opportunity cost to defect from the club has also collapsed. And if anything, Greg Smith's NYT OpEd has shown that it is not only ok to go to the press, but is in fact cool. So what happens next? Well, as the following Reuters article reports, 'whistleblowing' over corrupt and criminal practices on Wall Street is suddenly becoming the next growth industry. Yes - people may get 'priced out' of the industry, but since the industry will likely fire you regardless in the "New Normal" where fundamentals don't matter, and where the only thing that does matter is the H.4.1 statement (as Zero Hedge incidentally pointed out back in early 2010), why not expose some of the dirt that has been shovelled deep under the coach, and get paid some serious cash while doing it?

Here is Reuters on why we are about to get a deluge of Greg Smiths exposing the muppet army, only this time they will not cast merely ethical aspersions about their employers, but will provide solid, hard evidence of criminality.

Whistleblowers who were instrumental in revealing epidemic mortgage abuses, some of whom risked their careers to do so, are getting multi-million-dollar payouts, court documents show.

Victor Bibby and Brian Donnelly, two Georgia mortgage brokers, are among the handful of whistleblowers whose stories are coming into focus.

Bibby and Donnelly said they started noticing in 2005 that lenders were charging veterans hidden fees on mortgage refinancing - a violation of the government's Interest Rate Reduction Refinancing Loans program.

The pair, who worked for U.S. Financial Services Inc, a mortgage brokerage firm in Alpharetta, Georgia, said they became suspicious when lenders told them not to show an amount charged for attorneys fees on loan documents, but instead add the sum to the charge shown for "title examination fee."

After lenders ignored their concerns, Bibby and Donnelly hired an attorney and filed a whistleblower suit.

The payoff to rat out criminal behavior?

The wait paid off in the form of a $45 million government settlement with JPMorgan Chase & Co that became public this week. Bibby and Donnelly and their attorneys will receive 26 percent, or $11.7 million.

And many more are coming:

The case is one of five whistleblower suits settled for a total of $227 million as part of the broader $25 billion deal with five lenders over foreclosure abuses, according to court documents filed this week.

Details of the cases are emerging slowly as suits are unsealed and prosecutors disclose settlements.

U.S. Attorneys in North Carolina and South Carolina said on Monday that five banks - Bank of America Corp, JPMorgan Chase, Wells Fargo & Co, Citigroup Inc and Ally Financial - agreed to pay the amount to address allegations they participated in a nationwide practice of failing to obtain the required mortgage assignments, documents used to transfer ownership of loans.

The whistleblower in the case, Florida homeowner Lynn Szymoniak, will receive $18 million.

But wait, there's more. While Wall Street will hate these newly turned "rats", America's taxpayers, tired of being raped on a daily basis by Wall Street will embrace the "whistleblowers", especially since there is money finally coming back from Wall Street to the "rest of America."

Two of the other settlements outlined this week - for $75 million and $6.5 million - appear to be related to an investigation into whether Bank of America and its Countrywide Financial unit knowingly made FHA-insured loans to unqualified borrowers.

Prosecutors in New York said in February they had reached a $1 billion settlement with the bank over these practices, but have not yet filed court documents.

Court documents have not been filed in the fifth case, which resulted in a $6.2 million settlement.

Legal releases in the $25 billion mortgage settlement indicated other whistleblower cases are still in the works.

Sure, these people are terminally gone from the industry...

Bibby, who is 46 and married with three children, and Donnelly, who is 56 and married, said they don't have plans for their portion of the settlement. They will have to pay taxes and attorney fees out of the $11.7 million sum.

U.S. Financial Services at one time had about 50 employees, but is now basically out of business. They are not sure what they will do next.

"I think we're kind of dead in this industry, to say the least," Bibby added.

But so what? If the opportunity cost of staying is offset by millions in whistleblower payoffs, it makes the return on loss of career not only tolerable but largely desired.

Sorry Cramer, Greg Smith is just the beginning- with his Op-Ed he has unleashed an avalanche of similar disclosures, many of which will expose the true dirt that you and yours would do everything in your power to cover up.

Incidentally, and as a reminder, Zero Hedge will always gladly publish without editing any of our readers' reports of criminal or less than legal activity witnessed at their financial employers.

Unfortunately - that's the media now. 100% for profit and tightly controlled message. Report anything that will generate ratings and clicks - while not biting the hand that feeds you. There is no such thing as journalistic integrity anymore - it has been sacrificed in the name of profits and "access".

Holy cow, that's an amazing article. Since page 1 is filled with zingers & everyone should read it, I thought just for fun I'd take this quote out of page 2

The rationale for allowing that merger spree in the first place was based on a phony assumption: that big banks would somehow be more efficient and more profitable than small ones. "The whole premise of a Citibank or a Chase or a Bank of America is wrongheaded," ... Yves Smith. "Studies consistently show that after a certain size threshold, bank efficiency taps out. In fact, it turns out that all those cost savings the banks were supposed to enjoy from being bigger were actually based on cutting corners and fraud."

2 thoughts: Greg Smith spends 12 years working for someone he thinks is pure evil. Did he leave for these reasons or is the shit about to hit the fan and he's doing his on PR and washing his hands clean like he never had anything to do with it?

#2......STFU Jamie Dimon! Bullshit damage control from someone who's last name should be changed to Demon.

From the day we're born here in the west we're told to study and work hard, if you really work hard one can be "a doctor a lawyer", your parents and teachers push you to study to make money and have a career. One works their ass off then gets what they think is a reward, a good job with a reputable company (what they thought was reputable) in a reputable business. Along the way some people wake up from this trap.

Sitting in for due diligence on GS presentations, then researching their "facts" left no choice.

I have no idea why their derivitives business is still in business. Or anything else, for that matter. Why do investment teams pay fees to get a combo of lie/cheat/fraud ? They're sharks and all investors are the fish.

Not like the gov will do anything about it or investigate any of the claims. In fact I'd lay even money that the gov will investigate the whistleblowers for what they did instead. Nothing will be investigated until a million people show up in front of eric holder's office demanding it and I sure as shit don't see that happening in the days of snooki and march madness. Fughet about it. The people have spoken loudly and they prefer bread and circus.

I would love to believe Greg Smith's own sincerity, and GS is probably overdue tar and feathering, but there is also the self interest motive of whistle blowers who can switch teams (or start their own team) and take hundreds of thousands, millions, or billions of client wealth with them. Many investors are not simple sheep, goats maybe, cattle perhaps, but many are sorely pissed off about losing money, and about not earning decent returns on THEIR capital. Make no mistake, the basis of the game is THEIR money. If bank runs scare TPTB, guys like Smith that can play Pied Piper are also a threat to these powers. Not many have shown Smith's guts. I tip my hat to him for that, but I also suspect he's not retiring. Cramer is full of shit. Smith probably will be hired in a heartbeat if Smith can pull his GS customers along with him. And. this publicity certainly won't hurt his chances of attracting other fed up customers/investors.

Many if not most of the customers of investment banks are instutional investors like funds and pension funds.

The structure of funds is to have one or more persons who manage (and risk) somebody else's money while being paid a fat fee for it even for lousy performance (in fact, most funds underperform the market).

So what you have is a bunch of guys (at the investment bank) selling overpriced services to a bunch of other guys (fund managers) who themselves receive overpriced fees, with both the overpriced services and the overpriced fees paid out by the people that have their money in those funds.

Years ago at Barnes & Noble I bought a book called "The Illuminati Manifesto". This was before the esoteric section exploded after the DaVinci Code. It was hard to believe that it was on the shelf.

The author made a statement that I have never forgotten:

"The Illuminati envision a world in which its citizens are valued not only by social status and wealth, but by their integrity and honor, by the standard of individual rights; by the moral standard, by how they live in regards to each other, by the respect and honor they hold for the individual rights of others."